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HARNESSING THE POWER OF CUSTOMER LIFETIME VALUE.


Customer Lifetime Value

Customer Lifetime Value has never played a more important role in your growth than it does today.


In the midst of soaring inflation, a cost of living crisis and interest rates higher than we have seen for years, eCommerce brands are having to get smarter with the resources they have.


Customer Lifetime Value is the magic key that unlocks all of the doors 🗝️


Not only does Customer Lifetime Value go a long way to asses the current and future profitability of your brand, it is the best way to acquire, convert, and retain better customers. Which in short means greater profits 📈


Here’s why Customer Lifetime Value is so important and how it can help increase your profitability.


WHAT IS CUSTOMER LIFETIME VALUE?

Customer Lifetime Value measures the total amount of money that a customer will spend with your brand over the duration of their relationship with you. By understanding how much each customer spends on average over time, you can assess your overall success in terms of sales and profits.


Customer Lifetime Value also provides insight into the potential return on investment (ROI) for any marketing efforts directed at existing customers. This helps you optimise your marketing budget more efficiently and effectively by targeting those who are most likely to buy from you in the future.


WHY IS IT SO IMPORTANT?

Increasing Customer Lifetime Value is essential for any business looking to maximise profitability and long-term growth potential. Customers who have already purchased from you are more likely to purchase again because they already trust your brand and product offering.


In addition, as customers become loyal and continue purchasing from you over time, they become more valuable due to their increased spending habits. As such, focusing on increasing CLV can be a powerful tool for any business looking to strengthen its bottom line through increased sales and profits.


HOW CAN YOU INCREASE YOUR CUSTOMER LIFETIME VALUE?

Increasing Customer Lifetime Value requires strategic planning across multiple departments such as marketing, operations, customer service and finance. Brands should focus on both acquiring higher-value customers as well as retaining current ones rewarding repeat purchases or referrals - be careful though, not all customers were created equal, some are more valuable than others. (You can see how to calculate your Customer Lifetime Value here).


Brands should focus heavily on engaging with customers online by offering content that adds value beyond just products or services being sold — such as helpful advice or educational information — in order to establish trust with both current and potential customers.


None of these things have to be expensive either, it can be as simple as engaging with your customers regularly, letting them know how much you value them, handwritten notes, small low value gifts, or inclusion in a community.


ALTERNATIVES TO INCREASING CUSTOMER LIFETIME VALUE.

For those of you who are focussed on more rapid growth or increasing market share, you might want to consider taking a slightly different approach with your Customer Lifetime Value activities. Rather than focussing on growing your Customer Lifetime Value, you can use it to leverage your growth.


First things first, not only will you need to know your Customer Lifetime Value, you will need to know your Customer Acquisition Costs (CAC) and work out the ratio of CLV:CAC.


If you were looking at increasing your Customer Lifetime Value this should sit at around 3:1. This will mean that you are growing sustainably whilst still investing enough in acquiring new customers. However, we are talking about aggressive growth and grabbing market share — if this is your ambition we can start to push this ratio down to 2:1 or lower.


At this ratio you won't be as profitable as you were but taking this approach still gives you a shot at retaining those newly acquired customers at a more profitable level later on down the road and puts the squeeze on your competitors.


As you start to get closer to a ratio of 1:1, the business will be at a point where it can't sustain itself with its own sales. It will require further investment, but as long as you are prepared for this, and your market share is increasing this could be a super effective way to grow quickly and edge out your competition.


⚠️ Beware this won't be sustainable long term ⚠️

There will come a point where you'll need to change your focus to consolidating your customer base and making them profitable. But the good news is that it's a lot cheaper to retain customers than it is to acquire new ones.


Ultimately, calculating, understanding, and leveraging your customer lifetime value figure is essential if you want to maximise your company’s profitability and growth potential. Now you just have to decide how aggressive you want to be...

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